Gloomy growth outlook hits equities

Indices have turned lower in early trading, with the FTSE 100 down 80 points as fears about economic growth resurface.

• European markets in the red in opening moves.
• Stocks vulnerable as European Commission issues downbeat outlook.
• Whitbread sinks after Q1 figures.

Stocks in London and on the continent are lower as the EU Commission issues a bleak outlook for GDP growth, pouring cold water on the economic recovery narrative that had held sway over the past few sessions thanks to data from the US and China. It expects a deeper recession this year and a weaker bounceback next year, which does at least set the bar relatively low and allows for the possibility of beating expectations if things go better than forecast. But with stocks having rallied sharply over the last few sessions the market is not in the mood to hear much bad news, and we have seen the Dax and FTSE 100 both move sharply lower in early trading. Adding to the potential hurdles is a rise in the Vix, which is back above 30 this morning after heavy declines in late June. It looks like we are set for a tougher week than the one just gone, when equities enjoyed healthy gains despite rising case numbers in the US.

Whitbread’s announcement on Q1 trading this morning was very much in the ‘things are bad now, but will hopefully get better’ category, providing little meat for investors to sink their teeth into. The shares have failed to gain much traction of late, surrendering almost all the gains from the second half of March, at a time when many other names have continued to enjoy healthy rallies. Whitbread, so long a darling of the UK market, is firmly out of favour, and remains definitively in the ‘cheap for a reason’ basket. 

Ahead of the open, we expect the Dow to start at 26,006, down 281 points from Monday's close.